Home loans proposed as a focus area for the banking market study

The Commerce Commission has proposed to undertake a market study into personal banking services with home loans and deposit accounts as focus areas.

In the preliminary issues paper released by the commission, it outlined the key products and issues it proposes to explore in the market study, saying the two areas were selected because they were the “most relevant to most people.”

“Deposit accounts and home loans are an important aspect of how banks compete for retail customers and are held by a large proportion of Kiwis,” said John Small (pictured above), Commerce Commission chair.

“We will also consider other banking products to build a complete picture of competition between personal banking service providers.”

The preliminary issues paper also includes a review of performance indicators for New Zealand banks, which draws on existing research and sets out how profits and other metrics compare with overseas rivals.

“Our initial review of existing research shows that our banks are more profitable than in comparable economies over the past decade, and this raises questions for us,” Small said. “We want to understand whether lack of competition in personal banking is a contributing factor. This is important in the context of our study as profitability can serve as an indicator of the intensity of competition.

“As we’ve previously set out, the study is looking at how the competitive process is working. If competition is working well in the sector, we’ll see the benefit to Kiwis consumers through the quality and range of products available, fees, interest and charges and the services offered.”

With deposit accounts and home loans proposed as a primary focus for the study, the following range of issues might be explored:

• The nature of competition in the sector
• Whether all Kiwis are well served by the sector
• The ease of entry and expansion and the impact of legislative and regulatory frameworks
• How easy it is for Kiwis to swap providers and the degree to which the tying and bundling of services may limit switching
• How innovative the sector is, particularly in comparison to overseas markets, and whether there are barriers to innovation here
• Whether bank profits are consistently high and if so, whether the intensity of competition be ruled out as a contributing factor

The commission is now inviting feedback to the paper via its website, to help to shape the focus areas for the study. Submissions will close on Sept. 7 at 4pm. 

“We know how important this sector is to New Zealanders and the 14-month timeframe is necessary to deliver a robust study and includes the time we need for public consultation like this,” Small said. “There’s been significant interest in this market study, and our thinking and conclusions will be guided by the feedback and evidence we receive over the coming weeks. 

“We need to hear from the sector – the major banks and the small banks, as well as non-bank participants. We also know there are different experiences of personal banking services across communities and demographics and it’s important that we hear from customers about those.”

Mark Wilkshire, CEO of The Co-operative Bank, said the proposed focus for the banking market study “is good news for everyday New Zealanders.”

As the only home-grown New Zealand bank that is owned by customers and shares its profits with customers as rebates, The Co-operative Bank is in a unique position. It focusses on the banking needs of everyday New Zealanders – which is also the focus of the study.

“New Zealanders are increasingly under pressure due to the rising cost of living,” Wilkshire said.  “For many, a home loan is a significant part of this household expenditure. It is important that New Zealand banking customers are getting a fair deal.”

The bank chief also welcomed the Commission’s focus on the nature of competition in the sector, and the ease of switching between banks.

“The Co-operative Bank supports increased competition within the New Zealand banking industry, which will ultimately deliver better outcomes for customers,” Wilkshire said.

The banking market study was announced on June 20 by Commerce and Consumer Minister Duncan Webb and Finance Minister Grant Robertson, with the work already underway.

“Our market studies team includes skilled economists, lawyers, investigators, and analysts and they’ve well and truly hit the ground running,” Small said.

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